New Changes to the Mortgage Stress Test Coming April 6, 2020

The Federal government is changing the stress test rate for insured mortgages starting April 6. The government says the change will allow the rate to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The new minimum qualifying rate will be the greater of the borrower’s contract rate or the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus two percentage points.

The stress test rate currently is the greater of the borrower’s contract rate or the Bank of Canada five-year benchmark posted mortgage rate, which is based on the posted rates at the six largest banks.

Finance Minister Bill Morneau says the government wanted to make the stress test more dynamic to market conditions.

Why Use a Mortgage Broker?

When buying a home, the two most important resources are your real estate agent and your bank, right? Not necessarily.

While your bank is certainly equipped to help you finance your home purchase, there are other options available. In fact, according to Mortgage Professionals Canada, the country’s largest broker association, its members originate more than 35% of all mortgages in Canada and 55% of mortgages for first-time home-buyers.

So, if you’re considering buying a home you might be thinking: Which option is the best for securing financing?

To help you answer that question, let’s take a look at why you should use a mortgage broker.

To start, mortgage brokers are, well, pros. We dedicate our entire careers to becoming experts in one particular financial instrument: Mortgages. We know the ins and outs of hundreds of different offers from dozens of lenders; no two mortgages are alike and we pride ourselves on our ability to help home-buyers find the best possible mortgage for their individual situation. We also explain the myriad mortgage rules and rule changes, such as the recent mortgage stress test.

We can help you get the best mortgage rate. We can also help you determine how much mortgage you can afford.

Of course, rates are only one part of the mortgage picture.

We also have access to – and are able to offer – mortgages from dozens of different lenders. Want a mortgage with no pre-payment penalties? We have access to those. How about a portable mortgage? You guessed it: We have access to those as well. Another advantage is we have access to alternative lenders; we are able to serve certain home-buyers the banks turn away, such as those with bruised credit, new Canadians, or the self-employed.

We also make sure to go over all the terms and conditions of your mortgage so there won’t be any surprises if your home ownership situation changes or you decide to renew with a new lender. The same can't always be said about bank mortgage specialists.

This means we can be unbiased; we aren’t beholden to one particular lender. Which means we are more likely to find a mortgage tailored to fit every individual. And that add-on sales speech bank customers are all too familiar with (insurances, lines of credit, credit cards, and other financial products)? we aren’t incentivized to offer ancillary products in the same way bank specialists are.

Finally, we offer a completely online and over the phone experience; meaning you can go through the entire process of securing financing from your own home. 

OSFI Facing Pressure to Ease Mortgage Stress Test

Article by Steve Huebl

"Canada’s financial regulator is facing growing pressure to tweak its mortgage stress test, and no longer just from the mortgage industry.

On Monday, Calgary city councillor George Chahal filed a motion asking for the mayor to call on the federal government to amend the stress test implemented by OSFI (the Office of the Superintendent of Financial Institutions) on January 1, 2018.

Chahal argues the stress test is designed for the Greater Vancouver and Toronto markets, where prices have soared in recent years, and that slower-growth cities, such as Calgary right now, are suffering the wide-ranging consequences. One of those, which he addressed in his motion, is that many borrowers who don’t pass the stress test are being forced to turn to private, unregulated lenders that typically charge higher rates.

“I think we need to have a made-in-Alberta solution based on local economic indicators and which reflects the needs of Calgary and our local economy,” he told The Calgary Star.

Alberta Conservative Party Leader Jason Kenney also spoke out against the stress test last week, vowing to fight it should he be elected premier.

“If you elect a United Conservative government, we are going to go to bat for [those]…who are being pushed away from home ownership because of the prejudicial, regional, unfair stress test imposed by the Canada Mortgage and Housing Corp.,” he said in a speech to Calgary real estate agents.

In January, Mortgage Professionals Canada released its annual report, which addressed the negative effects of the stress test and reiterated calls for changes. Key among them being that any stress test be based on a “relevant” interest rate and factor in income growth and principal repayment; stop subjecting renewals to the stress test; and making it easier for borrowers at alternative lenders to transfer to more liquid and lower-cost lenders.

Canada’s big banks too, which at one time welcomed the stress test, are now voicing their own concerns in the face of a 17-year low in mortgage growth.

“The damage caused by the central bank’s premature bullishness was reversed quickly [with a pause in interest hikes]. What hasn’t been reversed yet is the damage to the housing market due to OSFI’s B-20 rules,” CIBC Deputy Chief Economist Benjamin Tal wrote in a research note, adding that he does not view the introduction of the 200-bps stress test as an error. “Some Canadians needed to be saved from themselves. But given where we are in the cycle, and with policy rates up by 75 basis points since the introduction of the new measures, is 200 basis points still the right number? Not taking a position here… just asking.”

In an interview with the Huffington Post, he added: “It’s not something that has to be set in stone. It should be more dynamic,” he said of any stress test. “You have to assess the damage to the housing market, whether that damage is too severe, and what other forces in the market are leading to slower growth.”